Excise Taxes, Regulation, and the Demand for Cigarettes

by Jeffrey Wasserman

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More than 320,000 people die prematurely each year as a result of their smoking. Consequently, public health gains may be made by developing and implementing effective policies to discourage cigarette consumption. This study examines the potential of two policies--increasing excise taxes and restricting smoking in public places--that may effect reductions in aggregate cigarette smoking and a subsequent improvement in public health. The study presents empirical analyses of these two policy alternatives. Specifically, it develops and applies several models of the demand for cigarettes to explore the ways excise taxes and regulations affect the smoking behavior of both adults and teenagers. The findings suggest that, in the short run, increased excise taxes coupled with additional regulations on smoking in public places will significantly reduce cigarette consumption. However, before effective long-run anti-smoking policies can be developed, considerably more needs to be learned about the determinants of smoking behavior.

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